Bajaj Finance sees margin recovery as cost of funds peak, more investment in new business lines

In Q2FY25, Bajaj Finance’s CoF increased by 3 basis points sequentially to 7.97 percent

Bajaj Finance delivered mixed results for the July-September quarter but expressed optimism about margin recovery in the coming quarters. During its analyst conference call, the management highlighted that the cost of funds (CoF) has likely peaked, paving the way for margin improvement.

“We expect Net Interest Margins (NIMs) to stabilise at current levels, with a gradual shift toward our secured portfolio,” the management noted. They added that lower default rates and recent underwriting actions have provided relief on credit costs. Additionally, a 25-basis-point repo rate cut could further enhance margins by 10-20 bps.

The company plans to reinvest margin gains into new business lines, which currently contribute 2-3 percent of Assets Under Management (AUM), while also driving operational efficiency.

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In Q2FY25, Bajaj Finance’s CoF increased by 3 basis points (bps) sequentially to 7.97 percent, indicating a possible plateau. Net Interest Income (NII) surged 23 percent YoY to Rs 8,838 crore, compared to Rs 7,196 crore in Q2FY24. Meanwhile, the AUM grew by 29 percent YoY to Rs 3.7 lakh crore as of September 30, 2024, from Rs 2.9 lakh crore a year earlier.

However, elevated loan losses impacted profitability and Return on Assets (ROA). Consolidated net profit rose 13 percent YoY to Rs 4,000 crore, up from Rs 3,551 crore in Q2FY24, but asset quality remained under pressure.

As of September 30, 2024, Gross NPA and Net NPA stood at 1.06 percent and 0.46 percent, respectively, compared to 0.91 percent and 0.31 percent a year ago, reflecting some deterioration in asset quality.

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